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Importance of Asset Allocation in Retirement Planning

You may look forward to the freedom that retirement brings, but if you want a comfortable life post-retirement, financial independence is essential too. You require enough planning, financially, to secure yourself and your family in the absence of a regular income. There may be additional costs to bear, besides living expenses, during retirement. These include medical costs, and costs to account for inflation, and other expenses. One way to plan your financial corpus for the future is to invest in different types of investment instruments. This is also known as asset allocation. Asset allocation refers to the quota of the allocation of total available funds to various investment products/instruments.

Investment plans also act as tax-planning tools, as many avenues help reduce tax liability. There are different types of investment plans, and by choosing the right one, you can invest according to your needs and grow your savings.Read Less

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Written ByPalak Bagadia
AboutPalak Bagadia
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Palak Bagadia, Associate – Digital Marketing at Bajaj Allianz Life, with experience spanning content and performance marketing, recruitment, employee engagement in the BFSI industry.
Reviewed ByRituraj Singh
AboutRituraj Singh
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Rituraj Singh,With over 6.5 years of experience in the insurance industry, Rituraj Singh, Manager- Product & Brand Marketing at Bajaj Allianz Life Insurance overlooks new product launches, compliance, and brand projects, leveraging artificial intelligence and technology to enhance outcomes.
Written on: 7th July 2024
Modified on: 7th July 2024
Reading Time: 15 Mins
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When you retire, you may not want to rely on your savings alone or be dependent on your children for your income. Therefore, it is vital to have a retirement plan in place while you are young. When you are young, you can afford to take risks with your investments, allocating funds in different assets to earn suitable returns. As you have a potentially long earning journey ahead of you, this is possible. Generally, the asset allocation instruments you may choose may be in equities, debt, or a combination of both. This largely depends on the funds to be allocated, the investment timeframe, and your risk tolerance.

 

Equity Allocation

 

An equity-based investment means that you allocate your funds to stocks listed on stock exchanges by various companies or other instruments which have equity as underlying asset. When you allocate funds to equity, you buy shares of a company based on a number of factors. Many investors consider investing in new companies like start-ups that show the possibility of growth in the future with an associated risk. This presents a chance to invest in companies that you can grow with and gain expected returns when the company reaches success and profitability. There is also risk associated with such investments. A retirement plan based on fund allocation to equity alone may be risky. Hence, you may consider investing only a portion of funds in equity.

As shares and stocks are prone to face volatile value swings upwards or downwards, you may lose money on the stock market. Nonetheless, when you see gains, these can be high. you may hold on to your assets for the long term, as this increases the probability of market linked returns. Hence, you have youth as an advantage while investing in stocks for your retirement when you are just embarking on your career. However, if retirement planning takes place while you are a bit older, say in your 40s, you may rather consider investing in less risky options than the stock market.

 

Debt Allocation

 

There are various ways that you can allocate your funds, balancing risk with safety. If you invest in debt-related instruments, asset allocation is more likely to be secure for you, compared to investment in equity. Investment in debt-linked instruments is mainly for risk-averse investors who would rather have low to moderate returns than the stress of risk. Debt instruments may be in the form of debentures or government bonds. These are assets that are of a fixed-income nature. These kinds of assets may be more appealing to older investors who fear risks and want a safety net instead. With debt asset allocation, the investor usually receives regular interest payments which can be used for a number of financial purposes. Just having a debt fund may not ensure sufficient enough returns to build a corpus for retirement. Hence, it is preferable to have a blend of assets like part of your wealth in equity, and part in debt or instruments which are mix of both. The debt part helps to stabilise any risks that equities may generate.

 

Hybrid or Mixed Allocation

 

The viable and steady way to allocate your assets so that it can help you achieve your retirement plan goals is a hybrid allocation. A suitable way to plan how much of a corpus you need, is to use a retirement calculator to do the maths. Once you know how much you need, you can invest in a variety of instruments and assets according to your timeframe of investment and the amount you wish to collect. If you go in for hybrid or mixed asset allocation, you may reap optimal benefits without too much risk. A mixed investment portfolio permits you to distribute your funds in such a way that may help a steady growth of your wealth.

 

Conclusion

 

Making a retirement plan and sticking to it diligently is more challenging than you think. Nonetheless, with a clear mind and proper calculation, you can find out how much you require to retire with grace and dignity. Planning for your retirement is not something you should avoid or put off until it is too late. The earlier you start, the better it will prove to be in the long run for you.

One mistake may be never to plan for your retirement, but the other may be to plan to allocate your wealth to just one or two types of instruments or products. While you are young, you must consider aiming for portfolio diversification. Asset allocation must be varied, and with the range of investment products on offer today, from the traditional FDs to cryptocurrency, among others, there is a lot you can allocate your wealth to. Although allocation of assets to gain market-linked returns is vital in youth, it is equally important to buy financial products that safeguard your interests, like health insurance and life insurance. In fact, there are life insurance products like ULIPs which invest in equity market. These may be some of the instruments you may choose to financially protect you and your family against the costs you may have to incur due to unpredictable circumstances. Today life is full of uncertainty, and you need financial backups during emergencies.

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~Tax benefits as per prevailing Income tax laws shall apply. Please check with your tax consultant for eligibility.

**Past performance is not indicative of future performance.

The above information is for general understanding and is meant to educate the general public at large. The reader will have to verify the facts, law and content with the prevailing tax statutes and seek appropriate professional advice before acting on the basis of the above information.

The views stated in this article are not to be construed as investment advice and readers are suggested to seek independent financial advice before making any investment decisions. For more details on risk factors, terms and conditions please read the sales brochure & policy document (available on www.bajajallianzlife.com) carefully before concluding a sale.

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*Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.

~Individual Death Claim Settlement Ratio for FY 2023-2024

1Premium Holiday has to be selected at inception to avail this benefit and also depends on other policy terms & conditions


Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116

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I hereby authorize Bajaj Allianz Life Insurance Co. Ltd. to call me on the contact number made available by me on the website with a specific request to call back. I further declare that, irrespective of my contact number being registered on National Customer Preference Register (NCPR) or on National Do Not Call Registry (NDNC), any call made, SMS or WhatsApp sent in response to my request shall not be construed as an Unsolicited Commercial Communication even though the content of the call may be for the purposes of explaining various insurance products and services or solicitation and procurement of insurance business

 

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%%Above illustration is for Bajaj Allianz Life eTouch- A Non Linked, Non-Participating, Individual Life Insurance Term Plan (UIN: 116N172V03) considering Male aged 25 years | Non-Smoker | Policy Term (PT)– 30 years | Premium Payment Term (PPT) – 30 years | Sum Assured opted is Rs. 1,00,00,000 | Online Channel | Standard Life | 1st Year Premium is Rs. 6,238. 2nd Year onwards premium is Rs. 6,659. Total Premium Paid is Rs. 1,99,349 | Medical Rates | Yearly Premium Payment Mode | Death benefit opted is lumpsum payout and monthly installments (Lumpsum Payout Percentage : 45, Income Payout Percentage : 55) | Premium shown above is exclusive of Goods & Service Tax/any other applicable tax levied, subject to changes in tax laws, and any extra premium and is for illustrative purpose only. This is inclusive of all the discounts mentioned above.

##Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.Above Tax benefit is calculated considering deduction of Rs. 150,000 and applicable tax rate of 31.20%.

@Term Insurance plan bought online directly from Bajaj Allianz Life Insurance has no commissions involved.

^^The Return of Premium amount is total of all the premiums received, exclusive of extra premium, rider premium and GST & /any other applicable tax levied, subject to changes in tax laws
Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116

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Bajaj Allianz Life eTouch- A Non Linked, Non-Participating, Individual Life Insurance Term Plan (UIN: 116N172V04)

*Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.Above Tax benefit is calculated considering deduction of Rs. 150,000 and applicable tax rate of 31.20%.

~Individual Death Claim Settlement Ratio for FY 2023-2024

1Premium Holiday has to be selected at inception to avail this benefit and also depends on other policy terms & conditions


Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116


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^Subject to Section 10 (10D) conditions i.e. aggregate annual premium for ULIP policies issued on or after 1st February 2021 does not exceed Rs. 2.5 Lakhs.

1Minimum premium mentioned is applicable for Bajaj Allianz Life Goal Assure IV - A Unit-linked Non-Participating Individual Life Savings Insurance Plan (UIN: 116L204V01) and is subject to policy terms and conditions.

#Source: https://economictimes.indiatimes.com/investments-marts/eight-crucial-numbers-to-ensure-financial-success/10-times-the-annual-income-is-your-life-insurance/slideshow/16699748.cms . Subject to availability in Bajaj Allianz Life ULIP Plans. For more details on risk factors, terms and conditions please read sales brochure & policy document (available on www.bajajallianzlife.com ) carefully before concluding a sale.

*Benchmark: Nifty 500 Multicap Momentum Quality 50 Index past 5 CAGR Returns, as on 31st December 2024. Past returns of a fund are not necessarily indicative of the future performance of the fund. | Please consult the financial advisor before investing.

The Unit Linked Insurance Products do not offer any liquidity during the first five years of the contract. The policyholder will not be able to surrender or withdraw the monies invested in Unit Linked Insurance Products completely or partially till the end of the fifth year.

ULIPs are different from the traditional insurance products and are subject to the risk factors. The premium paid in ULIPs are subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions. Bajaj Allianz Life Insurance Company Limited is only the name of the Life Insurance Company and Bajaj Allianz Life Future Wealth Gain IV - A Unit- linked Non- Participating Individual Life Savings Insurance Plan (UIN:116L202V01), Bajaj Allianz Life Goal Assure IV - A Unit-linked Non-Participating Individual Life Savings Insurance Plan (UIN: 116L204V01), Bajaj Allianz Life LongLife Goal III is A Unit-linked Non-Participating Whole Life Insurance Plan (UIN:116L203V01), Bajaj Allianz Life Invest Protect Goal III - A Unit-linked Non-Participating Individual Life Savings Insurance Plan (UIN: 116L205V01), Bajaj Allianz Life Magnum Fortune Plus III - A Unit-linked Non-Participating Individual Life Savings Insurance Plan (UIN: 116L207V01), Bajaj Allianz Life Goal Based Saving III - A Unit-linked Non-Participating Individual Life Savings Insurance Plan (UIN:116L206V01) and Bajaj Allianz Life Smart Wealth Goal V - A Unit-linked Non-Participating Individual Life Savings Insurance Plan (UIN: 116L201V01) are only the name of the unit linked insurance contracts and does not in any way indicate the quality of the contract, its future prospects or returns. Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company. The various funds offered under this contract are the names of the funds and do not in any way indicate the quality of these plans, their future prospects and returns. For more details on risk factors, terms and conditions please read sales brochure & policy document (available on www.bajajallianzlife.com ) carefully before concluding a sale.

Nifty 500 Multicap Momentum Quality 50 Index Fund is available Bajaj Allianz Life Future Wealth Gain IV - A Unit- linked Non- Participating Individual Life Savings Insurance Plan (UIN:116L202V01), Bajaj Allianz Life Goal Assure IV - A Unit-linked Non-Participating Individual Life Savings Insurance Plan (UIN: 116L204V01), Bajaj Allianz Life LongLife Goal III is A Unit-linked Non-Participating Whole Life Insurance Plan (UIN:116L203V01), Bajaj Allianz Life Invest Protect Goal III - A Unit-linked Non-Participating Individual Life Savings Insurance Plan (UIN: 116L205V01), Bajaj Allianz Life Magnum Fortune Plus III - A Unit-linked Non-Participating Individual Life Savings Insurance Plan (UIN: 116L207V01), Bajaj Allianz Life Goal Based Saving III - A Unit-linked Non-Participating Individual Life Savings Insurance Plan (UIN:116L206V01) and Bajaj Allianz Life Smart Wealth Goal V - A Unit-linked Non-Participating Individual Life Savings Insurance Plan (UIN: 116L201V01)

In addition to the already existing funds, Nifty 500 Multicap Momentum Quality 50 Index Fund is now available with the above mentioned products. Customer has an option to choose from other available funds apart from Nifty 500 Multicap Momentum Quality 50 Index Fund.

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I hereby authorize Bajaj Allianz Life Insurance Co. Ltd. to call me on the contact number made available by me on the website with a specific request to call back. I further declare that, irrespective of my contact number being registered on National Customer Preference Register (NCPR) or on National Do Not Call Registry (NDNC), any Call made, including via Voice over Internet Protocol & WhatsApp, SMS or WhatsApp messages, in response to my request shall not be construed as an Unsolicited Commercial Communication even though the content of the call may be for the purposes of explaining various insurance products and services or solicitation and procurement of insurance business

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